Solar projects awarded before customs duty change allowed cost pass-through

Solar power projects awarded before the basic customs duty (BCD) on imported equipment kicked in have been allowed by the government to pass on the additional cost of procuring expensive cells and modules.

The government imposed 25 per cent BCD on imported solar cells and 40 per cent on imported modules from April 2022 to support domestic manufacturing. Nearly 85 per cent of Indian solar capacity is built on imported cells and modules, mostly from China.

A notification by the ministry of new and renewable energy (MNRE) said on Tuesday: “solar photovoltaic (PV)/solar PV-wind hybrid power projects wherein last date of bid submission was on or before the announcement on March 9, 2021, the renewable energy implementing agencies can consider imposition of BCD on import of solar cells and modules under ‘change in law’, unless disallowed under any specific provision of the tender document.”

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The ‘change in law’ would help earlier bid projects pass on the additional cost of the solar cells and modules imported under the BCD regime.

MNRE has also granted a similar exemption to projects awarded before September 30, 2021 on the new GST rates of 12 per cent on different solar project components. It was 5 per cent earlier and this hike would also be considered under the ‘change in law’ provision and project developers can seek to pass through this cost.

‘Business Standard’ recently reported that solar power project developers were facing significant cost hikes due to BCD and GST, delaying project development. Sources said leading project developers, including state-owned NTPC Ltd, are not getting domestic suppliers for their tenders to procure solar modules.

This had hit close to 20 Gw of solar power capacity in the pipeline since last fiscal and several project developers could look at a cost hike, resulting in revision in the tariff at which they won the projects. This list includes record low tariff projects such as the 200 Mw project of NTPC won at Rs 1.99 per unit, said senior company executives.

Sector experts also pointed out; the supply of domestic modules is less than half the demand of the sector. At the same time, the price of solar modules has shot up by 30-40 per cent. The cost of Indian solar modules is usually 10-15 cents higher than ones made in China ones, the largest global supplier. The cost of solar PV modules in the global market is in the range of 28-30 cents per kWh while Indian modules cost around 40 cents per kWh, said experts.

According to JMK Research, India’s solar cell (component of module) manufacturing capacity stands at 4 GW, while the module is 18 GW. Also, Indian module makers import cells which have also witnessed price hike, along with supply chain hiccups.